Job Market Paper
Abstract: How does international knowledge sharing affect trade patterns, economic growth, and welfare across the globe? This paper answers this question by estimating a novel dynamic trade model where heterogeneous firms innovate. I first document that knowledge diffusion and technology adoption are two key channels for acquiring foreign knowledge using comprehensive Chinese firm-level data on trade, patents, and citations. Based on these findings, I develop a dynamic general equilibrium model where firms learn from sellers when importing and choose to adopt foreign technologies when exporting. In the model, diffusion enhances productivity for all firms, and adoption further amplifies these gains by boosting the productivity of the most efficient firms. I structurally estimate the model with bilateral trade flows for the global economy. I find that knowledge diffusion substantially increases the gains from trade in all economies, ranging from 0.2% to 8.7%. However, foreign technology adoption can reduce welfare in knowledge-abundant countries as their technological advantages get eroded. Technology adoption therefore alters the conventional gains from trade, with developed countries potentially benefiting from higher trade barriers.